‘Modern’ economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997), Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject

It is — sad to say — as relevant today as it was twenty years ago.

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logic is interesting and fun. It sharpens the mind. In pure mathematics and logic, we do not have to worry about external validity. But economics is not pure mathematics or logic. It’s about society. The real world.

Economics and Reality was a great inspiration to yours truly twenty years ago. It still is.

If human scientists could be supposed to play a system of analogous games of chance … the evidential support available for successful scientific hypotheses could be measured by a Pascalian probability-function … But unfortunately the analogy breaks down at several points. The number of co-ordinate alternative outcomes​ that are possible in any one trial of the issue investigated may be infinite, indeterminate, or at least unknowable … And even more importantly, the trial outcomes may not be independent of one another … In short, science is not a game of chance with Nature, and we can grade enumerative induction by an indifference-type Pascalian probability only when we are generalizing about outcomes over a selected finite set of trials in a supposedly genuine game of chance.

spiked: What is your take on the recent Lancet study that claims there is no safe level of alcohol consumption?

David Spiegelhalter: This is a huge study that brings together published evidence from nearly 700 other studies. It is really about how much people are drinking around the world …

In this study, the claim that there’s no safe level of drinking is the weakest part … What I do blame the authors for is that they only communicated relative risk. Lancet guidelines say that the results of risk analyses should always be communicated in terms of absolute risk. In other words, what does it mean for 1,000 people who drink X amount or don’t drink at all? The authors didn’t do this. And there was clearly poor refereeing by the Lancet. But the Lancet’s press office – bless them – did manage to get this data from the authors, which has allowed me to do my own calculations …

Using this study’s own figures, I calculated that 25,000 people would have to consume one drink per day in order for one of them to have a serious alcohol-related condition. That’s the equivalent of consuming 400,000 bottles of gin between them. So an extra drink or two is not very dangerous.

For realists, the name of the scientific game is explaining phenomena, not just saving them. Realists typically invoke ‘inference to the best explanation’ [IBE] …

What exactly is the inference in IBE, what are the premises, and what the conclusion?

The intellectual ancestor of IBE is Peirce’s abduction:

The surprising fact, C, is observed.
But if A were true, C would be a matter of course.
Hence, … A is true.

Here the second premise is a fancy way of saying “A explains C”. Notice that the explanatory hypothesis A figures in this second premise as well as in the conclusion. The argument as a whole does not generate the explanans out of the explanandum. Rather, it seeks to justify the explanatory hypothesis …

Abduction is deductively invalid … [but] there is a way to rescue abduction and IBE … What results, with the missing premise spelled out, is:

It is reasonable to believe that the best available explanation of any fact is true.
F is a fact.
Hypothesis H explains F.
No available competing hypothesis explains F as well as H does.
Therefore, it is reasonable to believe that H is true.

This scheme is valid and instances of it might well be sound. Inferences of this kind are employed in the common affairs of life, in detective stories, and in the sciences …

People object that the best available explanation might be false. Quite so – and so what? It goes without saying that any explanation might be false, in the sense that it is not necessarily true. It is absurd to suppose that the only things we can reasonably believe are necessary truths …

People object that being the best available explanation of a fact does not prove something to be true or even probable. Quite so – and again, so what? The explanationist principle – “It is reasonable to believe that the best available explanation of any fact is true” – means that it is reasonable to believe or think true things that have not been shown to be true or probable, more likely true than not.

Professor Emerita Inger Enkvist of Lund University, writing in Göteborgs-Posten on 23 September, said two trends are challenging open debate at universities. These are the trend to “protect students against thoughts that question their beliefs or feelings” and the tendency to treat gender perspectives as being above science …

In her article, Enkvist said that all professors in Sweden now are aware that they might be accused of sexism or racism.

Male teachers have to have their doors open when talking to a woman student and counselling rooms at universities are now built with large glass windows so that everybody can observe what is going on …

For Enkvist, the concern has been fuelled by a much-publicised report by Academic Rights Watch, a foundation for monitoring academic freedom in Sweden, of a student at the medical faculty at Lund University criticising a professor of neurophysiology, Germund Hesslow, for allegedly saying in a lecture that there might be biological differences between men and women.

Hesslow was called to a meeting of the medical degree programme board at Lund University. The chair of the board, Christer Larsson, requested him to modify two of the statements from the lectures: that homosexual women had a “male sexual inclination” and, with regard to transsexualisation, whether “this is a sexual orientation is a question of definition” …

“It is a misunderstanding that this is an exposition of a political agenda,” Hesslow wrote … “My agenda, if it can be characterised as such, is to defend the scientific approach that I think has to dominate all work at a university.”

Paul Krugman has repeatedly over the years argued that we should continue to use neoclassical hobby horses like IS-LM and Aggregate Supply-Aggregate Demand models. Here’s one example:

So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run.

I doubt that Keynes would have been impressed by having his theory being characterized by catchwords like “tendency to return to full employment” and “money is neutral in the long run.”

One of Keynes’s central tenets — in clear contradistinction to the beliefs of mainstream economists — is that there is no strong automatic tendency for economies to move toward full employment levels in monetary economies.

Money doesn’t matter in mainstream macroeconomic models. But in the real world in which we happen to live, money does certainly matter. Money is not neutral and money matters in both the short run and the long run:

The theory which I desiderate would deal … with an economy in which money plays a part of its own and affects motives and decisions, and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted in either the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.

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